Euro zone inflation falls to 2 percent in January

Reuters Staff

3 Min Read

BRUSSELS (Reuters) - Inflation in the euro zone fell to 2.0 percent in January, data from the European Union’s statistics office showed on Thursday, giving the European Central Bank room to consider a rate cut when it meets next week.

A shopper buys vegetables on a market in Nice southern France, February 28, 2008. REUTERS/Eric Gaillard

The annualised inflation rate was down from a 2.2 percent level in December, Eurostat said.

The fall was in line with forecasts of economists polled by Reuters as well as an earlier flash estimate from Eurostat.

Excluding volatile energy prices, the 12-month average rate of inflation was 1.9 percent, below the ECB’s inflation target of below but close to 2 percent, highlighting a benign environment that could allow for a rate cut that might help stimulate the region’s recovery.

Falling world energy prices and Europeans’ reluctance to spend as the euro zone struggles through recession have led to a fall in consumer prices over the past year.

The ECB’s Governing Council meets on March 7 and economists are divided over whether the bank will cut rates to below the current 0.75 percent.

According to a Reuters poll, only 17 of 75 economists see a cut this year, but the European Commission’s forecast last week that the euro zone will remain in recession this year could change that view.

“We think recent developments are enough to prompt a policy response,” JP Morgan said in a report. “A cut in the main refinancing rate is not the most powerful measure the ECB could implement, but it is a step in the right direction.”

Inflation pressures seem to have subsided, and the Commission, the 27-nation bloc’s executive, forecast the euro zone’s yearly inflation at 1.8 percent in 2013.

The ECB will be watching inflation carefully, however. In January, the biggest rises in consumer prices were in food and energy, which together make up a third of Eurostat’s index.

Consumer food prices rose 0.5 percent month-on-month and energy prices were up 1.3 percent in the same period. Offsetting those increases, prices fell in services and factory goods outside the energy sector.